World Of Direct Selling Review: Albania in 1996-1997

charles.ponziSimply put, a Ponzi scheme is an investors’ pyramid scheme. It is deceptive and for a long time, accepted as illegal. The whole idea behind relies on incoming new investors’ deposits. These new investments constitute incomes to those who joined earlier. Needles to say, the system collapses as soon as the inflow of deposits ceases. And this happens in every case without an exception.

The name “Ponzi scheme” originates from the first most popular “schemer”, Charles Ponzi (1882-1949).

What happened in Albania in 1996-1997, in this small Balkan country in Europe is important. This is because its scale relative to the size of the economy of the country and its political and social consequences were unprecedented. Undoubtedly, that period in Albania is full of lessons to all.

Let’s go back to see how it all had started and what happened afterwards…

Albania is a country in Southeastern Europe with a coast to the Mediterranean. After its liberation from thealbania Nazi occupation following the World War II, the country became a communist state led by Enver Hoxha and by his successor Ramiz Alia.

Transition to Market Economy

The communist state was dissolved in 1991-92 and the Republic of Albania, a democratic state, was founded.

When Albania started the transition to a market economy, it was considered as the poorest and the most underdeveloped country in Europe. The country was under a rigid communist dictatorship which banned all forms of private property and cut the country off from outside. Having lived under a communist regime for decades, the majority of the Albanians were completely unfamiliar with free market institutions and practices when the transition began in 1991

During this transition, Central Bank’s restrictions to limit banks’ credits because of increasing bad loans led to the emergence of various lending institutions. And besides these, grew companies that collected deposits not to lend them to others! These became Albania’s Ponzi schemes.

Ponzi Schemes of Albania

In the beginning, the regulations were not in place to supervise these companies. When the banking legislation was put into effect, it became apparent that the government was not in favor of taking any actions against them. On the contrary, the government and the officials were supportive of them, even appearing in these companies’ social events.

Some of these companies were exact Ponzi schemes with no real investments, some were in the “grey zone” and some were said to have even involved in various criminal activities.

In the beginning of 1996, the leading Ponzi schemes in Albania were offering 4-6% monthly interest rates. In the following months, this was increased to 8% / month. One of the Ponzi schemes started even offering a monthly interest of up to 19%! Country’s yearly inflation rate was 17% in the same year. Albanians were selling whatever they had including their houses, cars, and animals on the farms to invest in these schemes. Two of the largest schemes had 2 million “accounts”. Albania’s population at the time was around 3-3.5 million!

Then, even more agressive offerings started pouring in. One of the companies announced it started offering 30% monthly interest, another promised to increase people’s deposits by “three times in three months”.

While all these were happening, government was only passively watching. And this was despite all warnings coming from the Central Bank, and the international bodies like the IMF and the World Bank. Moreover, the President Berisha defended these schemes when money laundering allegations surfaced against them. Press and public and foriegn institutions were all vocal now. The goverment agreed to set up a commission to investigate the illegal activities but no meetings were held.

The Collapse

Then, the inevitable happened and one the largest schemes started having difficulties in making its payments and that was the first strong signal of the collapse. Depositors started questioning all schemes. In January 1997, this first company and one other large scheme declared they were bankrupt. They were followed by others.

In March 1997, the country was in a complete chaos. The government lost control of what was going on. Many officers in the army and members of the police force deserted. Hundreds of thousands of firearms were looted from army bases. Foreign countries started evacuating their citizens living in Albania and the Albanians themselves started emigrating to other countries. The government resigned and an interim government was appointed to take the country to a new election.

People’s losses in these schemes totalled to $1.2 billion and more than 2,000 people were believed to have been killed in this country-wide chaos.

Wouldn’t you agree with me that this whole thing is full of lessons to take?


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Troy Dooly is recognized internationally as an influencer in the areas of personal branding, leadership development, marketing campaigns, organizational expansion, and corporate launch strategies. Dooly is a speaker, results coach, and radio host. He is a founding member, show host (Beachside CEO) and News Director of the Home Business Radio Network. He is a founding member, and currently serves on the Board of the Association of Network Marketing Professionals